Maria Rojas is considering the possibility of opening a small dress shop on Fairbanks Avenue, a few blocks from the university. She has located a good mall that attracts students. Her options are to open a small shop, a medium-sized shop, or no shop at all. The market for a dress shop can be good, average, or bad. The probabilities for these three possibilities are 0.2 for a good market, 0.5 for an average market, and 0.3 for a bad market. The net profit or loss for the medium-sized and small shops for the various market conditions are given in the following table. Building no shop at all yields no loss and no gain. a. What do you recommend? b. Calculate the EVPI. c. Develop the opportunity loss table for this situation. What decisions would be made using the mini- max regret criterion and the minimum EOL criterion? ALTERNATIVE Good Market Average Market Bad Market Small shop 75,000 25,000 -40,000 Medium sized shop 100,000 35,000 -60,000 No shop MARKET 0 0 0
Maria Rojas is considering the possibility of opening a small dress shop on Fairbanks Avenue, a few blocks from the university. She has located a good mall that attracts students. Her options are to open a small shop, a medium-sized shop, or no shop at all. The market for a dress shop can be good, average, or bad. The probabilities for these three possibilities are 0.2 for a good market, 0.5 for an average market, and 0.3 for a bad market. The net profit or loss for the medium-sized and small shops for the various market conditions are given in the following table. Building no shop at all yields no loss and no gain.
a. What do you recommend?
b. Calculate the EVPI.
c. Develop the opportunity loss table for this situation. What decisions would be made using the mini- max regret criterion and the minimum EOL criterion? ALTERNATIVE
Good Market Average Market Bad Market
Small shop 75,000 25,000 -40,000
Medium sized shop 100,000 35,000 -60,000
No shop MARKET 0 0 0
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